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Congress vote reveals divisions

Analysis
By Steve Schifferes
BBC News

The bail-out bill will not erase the deep divisions in Congres.

The victory in the House of Representatives of the bail-out package sent a sigh of relief through financial markets. But divisions remain in Congress which point to the strength of populist feelings in the US electorate.

The leaders of the House of Representatives praised the bi-partisan coalition that led to the passage of the financial bill.

And Congressional leaders said they would press ahead with hearings on regulatory reform and "shine a bright light of accountability" on those who were responsible for the crisis.

But even the speaker of the House, Nancy Pelosi, admitted that "we were dealt a bad hand and made the most of it" - accepting that the bail-out was neither popular nor enough to stem the economic crisis.

And it was clear that a majority of House Republicans still opposed the bail-out plan, voting 91-108 to oppose it, while the Democratic members supported the bill by 172 to 63.

"How can we have capitalism on the way up and socialism on the way down," complained Jeb Hensarling of Texas, one of the key Republican critics of the bail-out.

And his concerns still echo in Republican districts in the South and West, which provided most of the votes against the bill.

Help for flood victims helped with Republican support for the bill

Many of these Republicans are deeply sceptical of government action and believe that financial markets are best left to right themselves.

The question will be how the Republican vote will play in the key marginal Republican seats that are concentrated in the Mid-West and North-East, such as upstate New York, the suburbs of Cincinnati and Cleveland, Ohio, and the former steel towns of Pennsylvania.

If the package costs them their seats, then the result will be a far more polarised Republican party, with fewer members like Chris Shays, the Connecticut Republican who was a strong backer of the rescue plan.

And that would lead to an even more polarised Congress in the future.

Economic concerns

Meanwhile, the large Democratic majority in the House of Representatives also conceals some deep divisions - especially between fiscal conservatives and those who want more help for the poor and homeowners hit by the credit crunch.

In trying to meet the popular concerns about the bill, House Democrats said that they would limit the cost to the taxpayer and that Wall Street would have to pay the ultimate bill.

And they also pledged the mantra of fiscal responsibility, with no new unfunded spending plans in the next Congress.

But there is no guarantee that the rescue plan will lead to recoupment of the full cost of the $700bn bail-out in the near future.

Help for homeowners

Many Congressmen want to do more for distressed homeowners

And now that the government is going to own these assets based on mortgages gone wrong, there is also a tension between recovering mortgage assets as quickly as possible - which could require more foreclosures - and allowing more homeowners to stay in their homes, which could make it harder to sell them back into the private market.

What seemed to have swayed many Democratic representatives was further signs of the deteriorating economic situation, including the sharp increase in unemployment and the concern that big states like California were running out of money as they were unable to access capital markets.

Two key groups of Democrats switched votes since Monday - members of the Congressional black caucus, many of whom were persuaded by Senator Obama that it was their constituents who would suffer most from an economic meltdown, and some freshmen Democrats.

Many of these freshmen are facing tough battles for re-election - but with the current electoral tide running strongly towards the Democratic party, were persuaded that they had to swallow hard and vote with their leadership in return for electoral backing.

However, with the economy expected to decline rapidly, whichever party takes the presidency and controls Congress will face some tough choices in their first year in office. Victory, if it comes on the back of economic weakness, may not prove so sweet.

Regulating Wall Street

Wall Street is now deeply unpopular on Capitol Hill

The real battles on how to reform the financial system are still to come, as Barney Frank, one of the key Democratic authors of the bill made clear.

He called the legislation "emergency medicine" to revive a dying patient, and pledged that the next Congress would examine long-term measures to make sure that the crisis could not recur.

And Democrats also pledged to hold hearings to see who was to blame for the crisis - targeting both the Bush administration and Wall Street.

But it is clear that there will far less agreement on long-term solutions than on an emergency rescue package.

Even as they passed the bail-out bill, Democrats called for another economic rescue package - but with a large budget deficit their room for maneouvre is limited.

However, any further moves will have to overcome the still deep-seated scepticism among the public about whether government does more harm than good when it intervenes in markets.

"The party is over," said Ms Pelosi, referring to Wall Street bankers.

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